Barbados - Second Road Maintenance and Rehabilitation Project

Document of The World Bank FOR OmCIL USE ONLY MICROFICHE COPY Report No. P- 5753-BAR Type: (PM) Repi No. P-5753-BAR MATES, A. / X38648 / I5 132/ LA3IN MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECTJTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO US$21.2 MILLION TO BARBADOS FOR THE SECOND ROAD MAINTENANCE AND REHABILITATION PROJECT MAY 29, 1992 This document bas a restricted disttibution and may be used by recdpients oY in the Performace of theki offidci duties. Its eontens my not oterwwis e dsosed without World Bank authorizatio  CURRENCY BQUIVALENT Currency Unit - Barbados Dollar $B1.00 - US$0.50 US$1.00 $ $B2.00 WEIGHTS AND MEASURES I gallon - 3.785 liters I mile - 1.613 km ABBREVIATIONS MCW Ministry of Public Works, Communications and Transportation AISCAL EAR April 1 - March 31  FOR OMCIAL USE ONLY BARBADOS SECOND ROAD MAINTENANCE AND REHABILITATION PROJECT LOAN AND PROJECT S'JM2ARY Borrower: Government of Barbados. Beneficiarv: Ministry of Public Works, Communications and Transportation (MCW). Loan Amount: US$21.2 million equivalent. Terms: Fifteen years, including five years of grace, at the Bank's standard variable interest rate. Financing Plans IBRD Prolect CDB Project Total Proaram Government 12.0 4.0 16.0 TIBRD 21.2 - 21.2 CDB - 9.6 9.6 Total 33.2 13.6 46.8 Economic Rate of Return: 35%-weighted average-IBRD Project. 17%-CDB Project. 30%-Total Program. Staff Appraisal Report No.: 10264-BAR Mant IBRD 23663 This document has a restricted distribution and may be used by recipients only in the performance of their offcial duties. Its contents may not otherwise be disclosed without World Bank authorization.  MEMORANDUM AND RECOMMENDATION OF THE PRSSIDENT OF THE INTERNATIONAL BANK POR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO BARBADOS FOR THE SECOND ROAD MAINTENANCE AND REHABILITATION PROJECT 1. The following memorandum and recommendation on a proposed loan of US$21.2 million equivalent to Barbados is submitted for your approval. The proposed loan would be repayable over fifteen years, including five years of grace, at the Bank's standard variable interest rate. It would help finance the Second Road Maintenance and Rehabilitation Project. 2. Sector Backaround: Barbados is a relatively small island with a population of 244,000 and a total area of about 430 square kilometers. It enjoys, however, an extensive paved road network of 1,550 km. The paved road density, at 3.6 km per square kilometers, is high in comparison with other islands of a similar size. The relatively flat terrain (except for the northeastern part of the island) and the higher standard of living contribute to the increased size of the road network. Most roads are in fair condition but about 10% of the primary and secondary roads are classified in bad condition and there is also a backlog in periodic maintenance. Furthermore, there are three factors which lower the efficiency of the transport system in Barbados: (a) there has not been systematic programming of maintenance activities and roads have been maintained to the same standard regardless of traffic level, thus increasing unnecessarily the cost of providing the road infrastructure; (b) a substantial amount of capital works has been carried out by force-account which tended to raise investment cost; and (c) passenger transport services provided by the publicly-owned bus company (the Transport Board) have resulted in heavy financial losses. Some of these inefficiencies have been tolerated as long as economic growth enabled the Government to allocate sufficient resources to cover the costs of these activities. The overall economic decline in recent years, which reached a crisis point in 1991, has made the resolution of the system's inefficiencies a high-priority issue. 3. In the context of the Stand-By-Arrangement with the IMP, approved in February 1992, the Government has laid off 1,200 employees of the Ministry of Works, Communications and Transport, (MCW), thus bringing down MCW' s staff level from 2,500 to about 1,300 with maintenance personnel reduced from 1,400 to less than 800. The Government also reduced its budgetary allocation to MCW in FY91/92 for both investment and current expenditures in its bid to reduce the public sector deficit to 12 of GDP and eliminate it in subsequent years. The reduced level of staff and expenditures requires that special attention be given to the design of adequate capital budgets and road maintenance plans if the road infrastructure is to be kept at an acceptable standard and maximum benefits are toL be derived out of the available resources. 4. The Government's strategy for the sector now calls for a minimum investment in new construction and reconstruction works, which would be limited to a few high-priority projects, a shift in focus to efficient management of the existing network, especially adequate road maintenance policies, and an increase in the role of the private sector in carrying out this strategy. Such privatization, however, has to be approached carefully because of the limited competition and the small size of the market. The Government also decided to embark on a strategy aiming at privatizing most or all operations of the  -2- publicly-owned bus company, the Transport Board, which has incurred large losses since 1976177, and reduce to a minima n its subsidy to the company (which amounted to over US$6 million in FY91/92). Given that private operators have been able to provide efficient and profitable passenger transport services in competition with the bus company, the Government is embarking on a study, with financing of the European Development Fund, to examine the option of reducing substantially the role of the Transport Board (e.g. serving only uneconomic routes required for social purposes) or eliminating it altogether. 5. The Ministry of Public Works, Communications and Transportation (MCW) is responsible for highway construction and snpervision as well as road maintenance. The organization is capable of handling the task. Quality of engineering designs (done partly by consultants) is satisfactory, as are the professional qualifications of the management and engineering staff. Supervision of works is being well handled, with major works supervised by consultants. However, some weaknesses remasin: the Planning Unit is not exercising its full potential because of lack of coordination with the operating departments and implementation of the new road and equipment management systems,started under the first Bank project, is still pending; additional training ani1 technical assistance and some organizational changes are required in these areas. 6. Gasoline and diesel prices in Barbados are very hi3h: US$2.62 per US gallon for gasoline and US$2.32 for diesel (border prices are US$0.74 and US$0.65, respectively). The level of user charges (taxes on fuel, vehicle registration fees, import duties, etc.) has been above total expenditures for road maintenance and investments in recent years. In particular, in FY91192 user charges are estimated to be more than twice the level of road costs. In addition, the Transport Levy Fund, which is non-user related and financed by a percentage charge on salaries of all employees, is earmarked to defraying the costs of improvement of public transport and construction and rehabilitation of public roads. The level of revenues from the Transport Levy is above the expected needs of the sector in the coming years given the change in Government investment strategy and the expected privatization of the Transport Board. The Government intends to phase out this tax a part of a new fiscal reform being prepared in cooperation with the IMF. 7. Rationale for Bank Involvement: The Bank has approved so far one operation for the road sector (Loan 2432-BRk of 1984, US$11.0 million, which closed on December 31, 1991). The loan financed urgent rehabilitation works and concentrated on strengthening key institutional areas without which more sophisticated planning systems and technical methods could not be introduced. This included the establishment of a Soils and Materials Laboratory, creation within MCW of a Planning Unit, Internal Auditor Office, a Project Accounting Unit, a Traffic Division and a Maintenance Management Unit. Also, first steps were taken to design an equipment and road maintenance system. With this foundation now in place, the first priority in terms of institutional improvement is the implementation of comprehensive road maintenance and equipment management systme and a concomitant computerized accounting system. The proposed project provides technlcal assistance for these tasks. Furthermore, in terms of investment planning, MCW has been moving toward network-wide management and away from concentration on a few road links with intensive capital requirement. The proposed project is based on an analysis of the whole network and involves a substantially larger part of the primary and secondary road networks (about 170 km compared to only 30 km included in the first project) at a reduced cost per  -3- km. With the benefit of the Bank's presence and monitoring, the project Will result in eliminating the backlog of periodic maintenance and a 6astainable road management system, providing road users with an adequate standard of service at the minimum feasible cost. 8. The shift in the investment focus away froce construction and reconstruction to periodif overlays will masimize savings in vehicle operating costs, most of which are in foreign exchange. The project will also bring about a reduction in the size of the road network and agreement on optimal maintenance policies for all roads based on their condition and traffic levels. This, in turn, would further assist in bringing down the cost of providing the transport infrastructure. Second, Bank's participation in the project will allow monitoring of an action plan to reduce to a minimum the Government's subsidy for passenger transport services and transfer most or all of the functions of the publicly-owned Transport Board to the private sector. Third, the project will also result in improving planning procedures, including regular updating of the Five-Year Investment Plan and the Four-Year Maintenance Plan in line with available resources. Finally, the project will provide the technictl assistance required to improve remaining weak areas in the organization such as the accounting system and investment planning. 9. Proiect Obiectives: The objectives of the proposed project are to: (a) install and implement sound maintenance policies and procedures on the road network; (b) preserve the capital base of road infrastructure within the constraints on capital and current expenditures; (c) assist in the transfer of all capital works to the private sector and explore the relative merits of private sector participation in carrying out routine road maintenance activities; {d) improve road safety; and (e) help the Government in its efforts to privatize passenger transport services. 10. Project Descrigtion: MCW has prepared, with the assistance of consultants, an acceptable Five-Year (1992/91-1996197) Investment Plan, which takes into account the recently-imposed constraints on investment and is designed to derive maximum benefits from the limited available resources. The Bank, in parallel with the CDB, will finance the large road investments in the period 1992-96, except for a Traffic Management Project, developed by the IDB, which is expected to start in FY94/95. Appraisal of the investment: program has been conducted jointly with the CDB and project conditionality is similar. Disbursements of funds from the CDB loan have been made conditional on the Bank's loan becoming effective. CDBIs loan is to finance the reconstruct4on of a 7.7 km section of Highway 2A and two related roads. 11. The proposed project includes: (a) rehabilitation of two sections of Highway 6 (101 of total costs); (b) a safety program consisting of improvement to five road intersections with a poor accident record (82 of total); (c) an overlay program involving about 160 km. of high-priority roads (601 of total); (d) rehabilitation of bridges and culverts (22 of total); (e) a pilot program of routine maintenance by contract (21 of total); (f) equipment rehabilitation and some acquisition in line with the requirements of the Road Maintenance Plan (102 of total); and (g) institutional improvements, including: technical assistance for road maintenance, workshop operations and transport planning; a training program for MCW staff and a retraining program for laid-off employees of both MCW and the Transport Board; and studies t- rationalize the road network and to privatize passenger transport operations (81 of total). The Bank will finance  -4- the foreign exchange component of the project. However, while Bank financing of overlays works (the largest component) will average 65S throughout the project, the loan will finance 80X of the works in the first two years and 502 in the last two years in order to help the Government overcome the current acute shortage of foreign exchange. Retroactive financing, up to a total of US$200,000 for equipment and US$150,000 for consultants, is proposed to enable an early start on the programs to reduce the operating losses of the Transport Board and expedite the introduction of the road maintenance system. 12. Imylement_tion Arran2esents: The implementation agency for the proposed loan would be MW,, which will carry out the project through its Technical Department; the latter has adequate capacity to handle the task. The highway and bridge rehabilitation, overlay work. and the safety program will be carried out by private contractors under the supervision of the Projects Division within the Technical Department. The Workshop Manager will be responsible for carrying out the equipment purchase and rehabilitation program and the technical assistance will be supervised by the Chief Technical Officer, Workshop Manager and Chief Ftnancial Officer in the areas of road maintenance, workshops, and accounting systems, respectively. The Transport Board Study and the Road Network Rationalization Study will be monitored by the Chief Planning Officer under the overall supervision of the Permanent Secretary. 13. Environmertal Imoacts The project will not have any adverse environmental impact, as most of the civil works involve only overlays over existing roads. The two road sections to be rehabilitated do not involve a major change in alignment or relocation. On the other hand, the project will reduce traffic congestion in and around Bridgetown and increase road safety. Furthermore, all civil works contracts signed by MCW already include provisions for cleaning up of construction sites and removal of debris. However, MCW does not hav any staff assigned on a permanent basis to monitor compliance with these provisions. An Environmental Officer will be nominated under the project. In addition, the operation of quarries is governed by the Quarries Act of 1967, wbich provides for substantial safeguards to ensure their safe operation, but does not provide for similar safeguards against soil erosion, contamination of underground water, or any other environmental hazard. The Quarry Act will be amended under the proposed project to correct these shortcomings. 14. Afreed Actions: The main issues discussed and agreed wi-:h the Government during negotiations ares (i) confirmation of the Five-Year (1992/93- 1996197) Investment Plan and the Four-Year (1992/93-1995/96) Road Maintenance Plan, their annual updating and a commitment to carry out the maintenance plan as agreed with the Bank; (ii) Government annual budgetary allocations for the project and for road maintenance materials; (iii) limiting road maintenance staff to no more than 800 employees; (iv) incorporation of the Planring Unit of MCW into the Technical Department; (v) implementation of a detailed plan to reduce the Transport Doard's cash deficit for FY92193 to less than US$2 million; (vi) submission by the Government, by July 31, 1993, of an action plan to substantially privatize passenger transport services and its implementation; (vii) submission by MCW, by December 31, 1993, of an action plan related to the Road Network Rationalization Study and its implementation; (viii) submission by MCW, by December 31, 1994, - a strategy for private sector participation in road maintenance; (ix) eubmission by the Government to the Parliament, by June 30, 1993, of an amendment to the Quarries Act to include environmental considerations; and (x) submission by the Government to the Parliament of an  - 5 - amendment to the Transport Levy Act, allowing its revenues to be used for general purposes or abolisl'ing it by March 31, 1994. As zonditions of effectiveness of the proposed loan, MCW will: (a) appoint an environmental officer under terms of reference acceptable to the Bank; and (b) appoint an equipment manager and a workshop accountant. In addition, agreement was reached on the time schedules of all technical assistance tasks and proposed studies as well as preparation of final engineering for overlay works and compliance with a list of quantitative indicators related to operational officiencies. A mid-term project review will be conducted in the first quarter of 1994, and will cover progress in the physical execution of the project, compliance with the quantitative efficiency indicators and the advance made in carrying out the various technical assistance tasks and studies and their resulting recommndations. In particular, disbursements against overlay works in FY94195 and subsequent years will depend on satisfactory progress in implementation of the action plan to privatize passenger tv-nsport services. The project review will also include an examination of the relative cost and quality of periodic and routine road maintenance works carried out by private contractors and by MECW's work force. 15. Project Benefits: The project will result in upgrading the condition of about 30S of the primary and secondary road systems and a signif'2cant reduction in transport cost, traffic congestion and accidents. The project will assist in the transfer of all capital works to private contractors, increase efficiency of road maintenance operations and improve equipment availability. The project will allow MCW to restructure its road maintenance operations and preserve its capital base under drastically lower budgetary allocations. Finally, the project will support the privatization of passenger transport services, thus reducing Government subsidies to the sector. 16. Proiect Risks: The project carries little risk from the technical point of view. Nowever, the agreed road maintenance and investment programs represent the minimum levels needed to preserve the road network; any further budget reductions vill endanger the level of service provided by the road infrastructure. We expect that the agreement with the 1IF will maks further budgetary cuts unnecessary. In the event, however, that such added cuts are needed, the project will ensure that they are made on the basis of economic ranking, so that the negative impact on infrastructure assets and transport cost will be kept to a minimum. Also, although the Government is fully committed to the privatization of bus passenger transport services, political factors could delay it. The project is designed to help avoid such delays by conditioning the overlay works in FY94195 and subsequent years on satisfactory progress of this privatization program. 17. Recomendation: I am satisfied that the proposed loan would comply with the Artiless of Agreement of the Bank and recommend that the Executive Directors approve the proposed loan. Lewis T. Preston President Washington, D.C. May 29, 1992  BRMADOS, Second Road Halntenance and RehabiUtation Prfojct Estimated Coet and Financina Pln Local ForgIii Tota' Proiect Costt --------- (US$ million)-------------- (a) Civil Works: Rehabilitation 1.1 1.3 2.4 Safety 0.9 1.2 2.1 Overlay 5.3 9.9 15.2 Bridges & Culverts 0.2 0.2 0.4 Land Acquisition 1.5 - 1.5 Maint. by contract 0.3 0.4 _0*7 Subtotal 9.3 13.0 22.3 (b) Equipment 0.1 2.5 2.6 (a) Technical Assistance, 0.3 1.7 2.0 Studies and Training (d) Contingencies 2.3 4.0 6.3 Total 12.0 21.2 33.2 Financial P1ans Local Fareintal -------------(US$ million)--------------- Government 12.C - 12.0 IBRD 21.2 21.2 tk.mated IBID- Diebursements ---------------Bank Fiscal Year------------ 1993 1994 1995 1996 1997 --------------(US$ million--------------- Annual 2.7 6.5 6.9 3.5 1.6 Cumulative 2.7 9.2 16.1 19.6 21.2 1/ Includes initial deposit in the Special Account and retroactive financing.  -7- Schedile B Second Il MAintenpe and Rehabilitation Pro1ect e ooNUwmen Mehod and Disbursements o/ A. ]s;ZEE projoca CoonatC ICB LCR Other N.A Total Civil worus 22.2 4.3 - .5kJ 28.0 (14.1) (2.4) (16.5) Equipment 2.2 - O.7I/ - 2.9 (2.2) C-) (0.7) (-) (2.9) Toebnal Assistance, - - 1.3d/ 0.9pI 2.2 -tudies and Tralnig J-(1.3) (0.5) (1.8) Total 24.4 4.3 2.0 2.4 33.1 ,,.41 "(2.01 (2, 2 it figures in parntheses are the amounts financed by the Bank. bi Laud acquisition. Al Consulting Services. a/ Tuition and fellowhips. R. flnuusghUUz c^ssax = I (Us$ million) Civil VOrke-Overlays 12.6 801 until disbursements reach US$ 7.4 million; 50Z thereafter. Civil Works-Othor 3.8 551 of total expenditures. Squipment and Spare Parts 2.8 1001 of foreign expenditures. 90S of local expenditures. gquipommt RahabilitatLou 0.2 60Z of total expenditures. Techanial Assistance S Studies 1.3 100l Training 0.5 1001 of foreign expenditures. SO of local expenditures.  -8- Second Road Maintenance and Rehb_ilitation Prgject Xl1table of Rev Pro1 at ProgessLn Evente (a) Time taken to prepares 21 montho (b) Prepared bys MCW and Consultants (c) First Bank Missions may 1990 (d) Appraisal Mission Departures February 1992 (e) Negotiations May 1992 (f) Planned Date of Effactivenesas September 1992  9 SCHEDULE 0 STATUS OF BANK GROUP OPERATIONS 'N BARBADOS A. Statement of Bank Loans as of March 31 1992 ...........US$ Mliton. AMount Loan Fiscal (Less Cancellation) No. Year Borrower Purpose Bank Undisbursed 7 Loans fully disbursed 44.8 2432-BAR 1984 Barbados Highway Maintenance 8.5 0.6 2688-BAR 1986 Barbados Education II 10.0 3.4 2782-BAR 198? Barbadoo Agricuttural Development 4.0 1.8 Total (Not of Concellationa) 67.3 of which has been paid 37.6 Total Noi Outstanding 29.7 Amount Sold 1.3 Of which has been repaid 1.3 0.0 Total now held by Bank 29.? Total Undisbursed 5.8 B. Statement of IFC Investments as of March 31 1992 Fiscal Type of -.-.--- USSNtllion.------- Year Obligator Business Loan Equfty Total ...... ......... ........ .... ...... ........ 1984 Caribbean Finanieal Finnce for productive 0.3 0.3 Services Corp. ventures in the Caribbean 1987 Town and Commerecal Tourism 1.3 1.3 PropQrties (Barbados) Limited LEmRted ,,,,, ~~~~~~~~~~~~~~~~~~..,.,. ..... Total Gross Comitments 1.3 0.3 1.6 Less Cancellations, terminations participations, sales and repaynents 0.3 0.0 0.3 Total Coruitments now held 1.0 0.3 1.3 Total Undisbursed (including participants) 0.0  IBRD 2363 w2o. BARBADOS SECOND ROAD MAINTENANCE X / Hl AND REHABILITATION PROJECT - ' jfcePROJECT OVERLAY PROGRAM l -r3--PROJECT REHABIUTAlION PROGRAM O PROJECT SAFETY PROGRAM F(r'S W; ,* CDB-FINANCED ROADS o M 1- PRIMARY ROADS ------ SECONDARY ROADS TJ S - ROAD MAINTENANCE DEPOTS tl'~ SpeigbhtitOWl *Ovang Hill ,PARISH BOUNDARIES 1?W . , , _{ (ST. ANDI WW ~~ INTERNATIONAl BOUNDARIES (\2 /o o /vr) ; ,>4ltimv _ 4MILE r~~~ H 1ZO @ KIlOETER Ci.,,ben 1'~ O8?LUC 1 tett ~ ~ ~, , jton uwp.5Iqa Ch.gtdl.*deAeop n um <>@-~~~~~~~~~O -VWlsn_ J 2), AGG,